EUR/GBP jammed between German political uncertainty & UK ratings downgrade

EUR/GBP is trading slightly lower at 0.8815 levels this Monday morning in Asia as investors assess the impact of the negative news flow from both ends - surging support for the far right party AfD in Germany and UK credit rating downgrade by Moody's.

Jamaica Coalition likely in Germany

The only realistic option left with Merkel is to form a coalition with he Free Democrats (FDP) and the Greens - dubbed ‘Jamaica coalition due to the colors of the three blocks (black/yellow/green). But it won’t be easy to put together as Merkel would have to find common ground with parties that have very different policies on issues such as tax cuts and deeper integration with Europe. Furthermore, the rise of the far right AfD is bad news for the EUR as well.

UK credit rating downgraded by Moody's to Aa2 rating from Aa1.

The credit rating was cut on Friday on concerns about the UK's public finances and fears Brexit could damage the economic growth. The ratings downgrade is keeping GBP demand under check.

Looking ahead - European desks may offer EUR on fears that Merkel would have a hard time financing the bailout packages for beleaguered Eurozone nations.

EUR/GBP Technical Levels

A break below 0.8774 [Sep 15 low] could yield a sell-off to 0.8743 [July 14 low] and 0.8714 [200-DMA]. On the other hand, a break above 0.8838 [1-hour 100-MA] would open doors for 0.8873 [1-hour 200-MA] and 0.89 [zero levels].